As some of us may or may not know, the National Credit Act (NCA) was first introduced in 2005. The aim? Promote social and economic welfare for all South Africans. Its weapon of choice? Credit regulation. And its foe? Over-indebtedness among SA consumers.

Why We Need the National Credit Act

According to the latest BankservAfrica disposable salary index, South African workers are taking home less disposable cash than they were a year ago. In August this year, workers took home 2.5 percent less than during the same time in 2015.

This is thanks to an escalating inflation rate which accelerated from 4.6 percent, year on year, to 5.9 per cent in the year ending August 2016. Compounding that were above-inflation increases in personal income tax and medical insurance. It’s not difficult to see why South Africans are advancing their paydays in droves with payday loans.

But the rising cost of living and South Africa’s poor economic growth is adding strain to employers too. Capitec CEO, Gerrie Nel, said this week, in an interview with BDLive, that smaller businesses are buckling under the pressure of a slowing economy.

Citizens have less disposable income, are over-indebted, and live in an environment where food costs are increasing and borrowing costs are rising too. Naturally the economy is going to take some strain, because consumers can’t afford to spend as much.

Even Your Creditors Are in Debt

Capitec was recently in the news for their decision to tighten their lending criteria. The bank commands a 22 percent share of the local retail banking market in SA. In the six months leading up to August 2016, their unpaid loan book spiked by 44 percent. That’s an increase of R800 million in overdue loans, to a total of R2.6 billion. It’s not only Capitec. Rivals Standard Bank, Nedbank and Barclays Africa are all experiencing similar credit loss ratios of between 5.25 to 7.01 percent.

What the NCA Does

The NCA oversees all credit agreements from mortgages, to personal credit facilities like store cards and bank overdrafts, to credit guarantees and everything else in between.

The NCA’s Responsibilities Include:

Promoting a fair and transparent credit market

Standardising the way credit is offered so consumers can compare offerings

Regulate credit providers and other key role-players

Limit the cost of credit

Assist customers with over-indebtedness

Also operating under the NCA is the National Credit Regulator (NCR), regulating the entire credit market, as well as the adjudicating National Consumer Tribunal.

What the Amendments Mean To You

As of March 13, 2016, the long awaited affordability amendments to the NCA finally came into play. What this means is a significant increase in the affordability assessment requirements when applying for an unsecured loan. So it’s going to be way more difficult to get a loan you can’t afford.

This is in an increased effort to tackle the high level of over-indebtedness in South Africa. This is a huge concern for government who blame the failure of lenders to perform proper affordability tests on consumers. Other factors that have contributed are the hidden costs of credit, which the NCA also put a cap on in May this year.

The more stringent and comprehensive affordability assessment includes a number of boxes for lenders to check. This effectively means they will be responsible for making sure consumers can actually afford to pay back the money.

The new requirements for credit providers include calculating discretionary income (not gross), and disclosing all existing debts and maintenance obligations, as well as their employment history.

Credit providers also need to obtain three months of payslips and bank statements to validate gross income. Pre-agreements must disclose the total cost of credit in a quotation. That includes principal debt, interest rate, charges and insurance costs, etc. in a quotation that is valid for five business days.

The amendments do, however, require honest disclosure from consumers in order to protect them from over-extending themselves.

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